July 10 (Bloomberg) -- India has offered amnesty to more
than 100 wealthy citizens who evaded taxes by hiding funds in
accounts at HSBC Holdings Plc’s Swiss unit, according to a
government official with knowledge of the matter.

The income tax department has agreed not to start criminal
proceedings or levy a penalty if the Indians repatriate the
money from Geneva and pay the taxes, the official said, asking
not to be identified because the information is confidential.
The official declined to name anyone on the list.

India joins countries including the U.K. and the U.S. in
cracking down on rich people who haven’t disclosed offshore
funds amid probes into money laundering and tax evasion. A
British millionaire was convicted this month for hiding money in
HSBC’s Swiss bank in the first case to come before a London
court based on data that the U.K. obtained from France in 2010.

The amnesty offer in India is being made to some people who
were on a list of 700 citizens with HSBC accounts in Geneva that
was given to the South Asian nation’s government by French
authorities last year, the official said, without providing
additional details. The government is still investigating other
people on that list, the person said.

‘Pragmatic Approach’

“It’s a pragmatic approach,” said R.K. Gupta, managing
director at Taurus Asset Management Ltd., which manages $1
billion in assets. Bringing back money that hasn’t been
accounted for is now a “global phenomenon,” he said.

The Central Board of Direct Taxes, which includes the
income tax department, was asked to probe whether the 700
account holders had evaded taxes, India’s Sunday Express
newspaper reported on Aug. 7, citing finance ministry officials
that it didn’t identify. The names of HSBC clients won’t be
disclosed until the income tax department begins prosecuting
them, the Economic Times reported on Nov. 22, citing Finance
Secretary R.S. Gujral.

Anuja Sarangi, a spokeswoman at the Central Board of Direct
Taxes in New Delhi, didn’t return three calls to her mobile
phone or respond to three e-mails seeking comment yesterday.
Laxman Das, chairman of the CBDT, also didn’t respond to an e-mail. Rajesh Joshi, an HSBC spokesman in Mumbai, declined to
comment.

“As a general principle, we do not comment on whether
individuals are our clients or provide the number of clients of
a particular nationality,” Medard Schoenmaeckers, a Zurich-based spokesman for HSBC’s private bank, said by phone.

Stolen Data

France obtained data on accounts held at HSBC in Geneva
after a bank employee, Herve Falciani, stole information
connected to at least 24,000 current and former clients, the
London-based lender said in March 2010. Authorities in countries
including Italy and the U.K. have since acquired that data and
begun investigating whether those clients included people
evading taxes or involved in money laundering.

At the time of the data theft more than five years ago by
Falciani, HSBC’s Swiss private bank had no more than 1,500
clients in any one country, a Geneva-based official who declined
to be named in line with company policy, said in May.

In the U.S., a Wisconsin neurosurgeon was re-indicted in
September by a U.S. grand jury on new charges that he failed to
declare an HSBC account in India valued in 2009 at $8.7 million.
The U.S. crackdown on offshore tax evasion includes criminal tax
charges filed by prosecutors against more than three dozen
former U.S. clients of UBS AG and Credit Suisse Group AG,
Switzerland’s two biggest banks, and HSBC.

‘Black Economy’

India loses 14 trillion rupees ($250 billion) from tax
evasion every year, depriving it of funds for investment in
roads, ports and power, Arun Kumar, author of “The Black
Economy in India,” said in July 2011. Based on those estimates,
a successful crackdown could more than double the tax revenue
for the nation, which collected about 9.3 trillion rupees for
the year ended March 31, according to the most recent budget
proposal.

The nation’s economic growth slowed to 5.3 percent in the
three months through March, the slowest pace in nine years. That
slowdown has sapped tax revenue even as subsidies spur spending,
leaving India with record borrowing needs to plug the widest
budget deficit among the biggest emerging markets. The budget
deficit in the two months through May was 27.6 percent of the
goal for the fiscal year.

Prime Minister Manmohan Singh began trying to reform the
nation’s post-independence tax and regulatory code when he was
finance minister in 1991, accelerating tax cuts and reducing the
bureaucracy to make the tax system more effective. The top
individual income tax rate is now 30 percent, down from 97.5
percent in 1971.

Retrieving Funds

The Supreme Court in July 2011 also ordered a team headed
by a judge to take over the government’s efforts to retrieve as
much as $500 billion that Indians may have stashed illegally
overseas, citing in a 53-page ruling a case where records were
found of assets being held by a Swiss bank in Zurich.

HSBC’s Swiss private bank in September 2008 asked clients
and independent money managers to surrender their rights to
banking secrecy protection. In countries including India, where
rules demand investor disclosure, HSBC sought permission to hand
over the names of clients that want to keep their overseas
investments, the bank said in a letter e-mailed to Bloomberg
News in July 2009.

India is also proposing new rules as part of a clampdown on
tax avoidance by companies that would go into effect from April
2013. The guidelines, published in New Delhi on June 29, would
exempt foreign institutional investors from penalties if they
avoid routing money to the country through tax shelters.

Underground Economy

The value of illicit Indian assets held abroad was about
$462 billion, or 72 percent of the nation’s underground economy,
according to a November 2010 report from Global Financial
Integrity, a Washington-based research firm that focuses on the
cross-border flow of illegal money. India has lost $213 billion
in tax collection due to such flows from 1948 to 2008, it said.

The research firm’s estimates for illicit outflows from
India, while being useful, “are incomplete and further studies
are required,” India’s then-Finance Minister Pranab Mukherjee
said in a report titled “White Paper on Black Money” in May.